Font Size

HM Revenue and Customs Brief 27/09

 By

HM Revenue and Customs -Tax Authorities

Tax Articles
Submit Articles   Back to Articles

Issued 06 April 2009

Changes to the Tour Operators’ Margin Scheme

Introduction

This brief publicises changes to be made to the Tour Operators’ Margin Scheme (TOMS) in order to comply fully with EU law. The changes are to take effect from 1 January 2010.

Brief outline of the special scheme for travel agents

The special scheme for travel agents is a VAT accounting scheme and simplification measure for tour operators and other travel service providers based in the EU. Under the normal VAT rules, those businesses buying and selling various elements of their travel packages in different Member States would be liable to register and account for VAT in each of the Member States concerned. The special scheme enables tour operators to register in just the Member State in which they are established, rather than in all Member States where they provide travel services, thus significantly reducing their administrative burdens. Under the scheme, the supply of a travel package is treated as a single supply taxable at the standard rate of VAT, and operators account for VAT on their profit margin in the Member State where they are established, but are prevented from recovering input tax incurred on scheme purchases.

Background

The European Commission has written to the UK raising concerns about aspects of the UK’s operation of the TOMS and opining that the UK arrangements in respect of these issues were not fully compatible with the VAT Directive (2006/112 EC).
Following legal advice, the UK has accepted that aspects of the scheme were not implemented properly and gave a commitment to amend the TOMS, in order to comply with European law. These aspects concern:

  • supplies to business customers for subsequent resale
  • supplies to business customers for their own consumption and supplies of educational school trips
  • use of market values in respect of in house supplies

Separately, the European Commission commenced formal infraction proceedings against eight Member States for their operation of the TOMS. This did not include the UK.

Consultation

As the UK had no option but to make these changes, HMRC consulted informally with industry representative bodies, the JVCC and other professional bodies in the three month period ended 31 August 2008. The consultation, by necessity, was limited in scope and its purpose was to ensure that the changes are introduced in as business-friendly a manner as possible, with an appropriate transitional period. HMRC considered that 1 April 2009 would be a reasonable implementation date for the changes but, as a result of responses to the consultation, decided that 1 January 2010 would give businesses more time to prepare for the changes. HMRC were unable to announce these changes earlier as we had to seek some further clarification from the European Commission.

Changes to be made

Supplies to business customers for resale (the 'opt in')

As a concession (set out in paragraph 3.2 of Notice 709/5), HMRC has allowed tour operators who generally engage in normal holiday sales to the travelling public but occasionally sell to other travel businesses for onward resale the option of accounting for tax on the latter in the special scheme. This was intended to ease the administrative difficulties that operators might otherwise incur in having to use the normal VAT rules to account for occasional supplies of travel services to other businesses.

The UK has had to accept that the VAT Directive refers to supplies made to the 'traveller'. The 'traveller' is the person who consumes the travel, and so the scheme should not be used when the travel service is sold to a person other than the traveller, such as when supplies are made to business customers for resale. Those tour operators affected will have to change their practices from 1 January 2010 to account for the VAT due under the normal VAT rules. In some cases, this may give rise to a requirement to register for VAT in other Member States.

Supplies to businesses for their own consumption and the provision of school trips (‘the opt out’)

The UK includes travel services which are supplied to other businesses for their own consumption in the special scheme.

However, tour operators have been allowed to opt out of the scheme in respect of such supplies. This has meant that business customers have been able to recover VAT charged on those supplies subject to the normal rules. HMRC has also treated the provision of school trips as a non business activity for VAT purposes and allowed them also to be excluded from the special scheme, enabling local authorities to recover the VAT charged in relation to Local Education Authority schools.

The Commission has clarified that the term 'traveller' should not be restricted to the physical person who consumes a travel package, but also covers legal persons that consume the travel package, for example, businesses which pay for employee travel, and the supply of school trips to local authorities. Accordingly, Article 3(3) of the Value Added Tax (Tour Operators) Order 1987 will be revoked with effect from 1 January 2010. This means that from that date businesses receiving supplies of travel services from tour operators will no longer be able to recover VAT on such supplies. Those LEA schools that previously took advantage of the concession set out at paragraph 3.4 of Public Notice 709/5 will no longer be able to recover VAT on UK school trips purchased from tour operators. There will be no change for trips organised directly by a school, such as day trips involving coach transport to a zoo or museum. Non LEA schools (including Grant Maintained and Foundation schools) and youth clubs or colleges were not entitled to claim the concession, and are unaffected by this change.

Market values

The current UK TOMS calculation (as detailed in Notice 709/5) requires the margin to be apportioned with reference to the actual costs incurred by the operator in putting together the package. However, the European Court of Justice (ECJ) decision in the case of MyTravel (C-291/03) ruled that, where it is possible to establish an appropriate market value for that part of the selling price which corresponds to the in house supplies, this should be used to apportion the selling price between in house and bought in components. The margin can then be calculated on each of these elements, and the tax computation completed accordingly.

The Court also said, however, that the cost based method could be used where this accurately reflected the actual structure of the package. The ECJ did not elaborate on what it meant by this term but HMRC consider that, as the cost based method assumes a fixed percentage mark up across all elements of the package, the tour operator’s package would also have to be on a fixed mark up basis to meet this criterion. If it is not possible to determine a market value, tour operators can continue to use the current cost based method.

The ECJ left it to the national tax authorities and, where appropriate, the Courts, to assess whether it is possible to identify the part of the package corresponding to the in house services on the basis of their market value and, in this context, to determine the most appropriate market. Whilst the concept of market values is complex, and it is not always easy to determine exactly what a market value is in this context, drawing from the various Court findings, it would appear that certain parameters should be taken into account when deciding whether it is possible to establish such a value:

  • The market value (selling price) must be within the context of the tour operator's business, eg a tour operator could not use the price of a scheduled airline flight in determining a market value of the flight forming part of a package holiday.
  • The market value must be on a like-for-like basis, ie it should be determined on the basis of the price of similar services supplied by the taxable person, and not forming part of a package. If the taxable person does not provide similar services, it may be possible to use the price of services provided by other taxable persons, provided that they can be shown to be comparable.
  • Across the board averages may be used if correctly weighted and reviewed regularly.

It is clear from this that market values need to be considered on a case by case basis. Where such values are to be used, they will simply slot into the current calculation method at the appropriate point. The tertiary legislation setting out the market value calculation will be included in the revised Public Notice 709/5 in due course. In the meantime, it is attached in draft as an annex to this brief, together with some examples of calculations (at the 17.5 per cent rate of VAT) using market values. Although the tertiary legislation is not yet in place, in the light of the European Court decision, businesses may of course choose to use market values now where appropriate.

TOMS Calculation Example 1 All in house supplies calculated by market value

Package price £1000
Being the price paid for the full package by the holidaymaker
=========================
In-house MV SR £300
Being the market value of STD rate in-house supplied included in the package.
=========================
Bought-in SR cost £75
Bought-in ZR cost £250
Being the cost of the bought-in supplies that form part of the package

Using the matrix

Post the £1000 to box M1 and the £300 to box M2 of the market value matrix.

This works through to £700 in Box M5 which is then posted to Box 1 of the main margin scheme calculation.

The £75 is then posted to Box 2 and the £250 posted to Box 3.

The rest of the boxes can then be calculated based on the information (above) that has now been posted.

Market Value calculation (Annual adjustment)

THIS SECTION HAS THE FORCE OF LAW and is referred to in paragraphs xx

This section only applies to packages or parts of packages being apportioned by the market value of the in-house element of the package. On completion of all the steps M1-M5 you must then follow the steps in the cost-based calculation in section 9, taking forward the figures from this section as instructed
Step Boxes requiring ‘raw data’ entry are in white, boxes which ‘process’ that data are in grey.  
  Calculate the value of sales of margin scheme packages  
M1 Total the VAT-inclusive selling prices of all your designated travel services and margin scheme packages supplied during the financial year including any that are not ‘market value’ packages. 1000
  Working out the market value  
M2 Total the VAT inclusive market value of the standard-rated in-house supplies at M1: carry forward this figure to step 21 of section 9 300
M3 Total the VAT inclusive market value of the zero- rated and outside the scope in-house travel services at M1: carry forward this figure to step 26 of section 9 -
M4 Total the VAT inclusive market value of the in-house supplies at step M2 + step M3 300
  Working out selling value of designated travel services and non-market value in-house supplies.  
M5 Deduct the total at step M4 from the total at step M1: carry forward this figure to step 1 of section 9 700

Cost-based calculation (Annual adjustment)

THIS SECTION HAS THE FORCE OF LAW and is referred to in paragraphs.

This section applies to packages being apportioned by reference to the costs of the in-house element of the package, and imports the figures calculated by the market value method in section 8, where that method is used for all or some of the travel packages. Do not include values already entered in section 8 unless explicitly stated
Step Boxes requiring ‘raw data’ entry are in white, boxes which ‘process’ that data are in grey.  
  Working out the total sales of margin scheme packages  
1 Bring forward the total calculated at step M5 of section 8. If Section 8 is not used then enter the VAT-inclusive selling prices of your designated travel services and margin scheme packages supplied during the financial year. 700
  Working out the purchase prices of margin scheme supplies  
2 Total the VAT-inclusive purchase prices of the standard-rated designated travel services included in the total at step 1. 75
3 Total the VAT-inclusive purchase prices of the non standard-rated designated travel services (supplies enjoyed outside the EU) included in the total at step 1. 250
  Working out the direct costs of in-house supplies. Steps 4 to 7 can be ignored where a market value is applied to all in-house supplies under section 8  
4 Total the VAT-exclusive direct costs to you of the standard-rated in-house supplies included in step 1. Add a percentage of that amount equivalent to the standard rate of VAT. -
5 Total the VAT-exclusive direct costs to you of the zero-rated in-house supplies included in step 1. -
6 Total the VAT-inclusive direct costs to you of the exempt in-house supplies included in step 1. Deduct any input tax that you are entitled to recover on these costs. -
7 Total the direct costs to you of the in-house supplies included in step 1 that are supplied outside the UK, exclusive of any VAT incurred on these costs that you are entitled to recover. Add to the total an uplift equivalent to the percentage VAT rate applicable to such supplies if you have accounted for VAT on these supplies to the VAT authorities in another member state. -
  Working out the 'costs' of agency supplies  
8 Total the VAT-inclusive amounts paid by you to your principals in respect of the agency supplies included in step 1 for which the consideration you receive is standard-rated -
9 Total the VAT-inclusive amounts paid by you to your principals in respect of the agency supplies included in step 1 for which the consideration you receive is not standard-rated -
  Working out the total margin  
10 Add the totals of costs at steps 2 to 9 inclusive. 325
11 Calculate the total margin for all the supplies included in step 1 by deducting the total at step 10 from the total at step 1. 375
  Apportioning the margin  
12

Calculate the margin for the standard-rated designated travel services by applying the following formula:

total at step 2 x total at step 11
total at step10

86.54
13

Calculate the margin for the zero-rated designated travel services by applying the following formula:

total at step 3 x total at step 11
total at step 10

288.46
  Steps 14 to 17 can be ignored where a market value is applied to all in-house supplies under section 8  
14

Calculate the margin for the standard-rated in-house supplies by applying the following formula:

total at step 4 x total at step 11
total at step 10

-
15

Calculate the margin for the zero-rated in-house supplies by applying the following formula:

total at step 5 x total at step 11
total at step10

-
16

Calculate the margin for the exempt in-house supplies by applying the following formula:

total at step 6 x total at step11
total at step 10

-
17

Calculate the margin for the in-house supplies made outside the UK by applying the following formula:

total at step 7 x total at step 11
total at step10

-
18

Calculate the consideration for the standard-rated agency supplies by applying the following formula:

total at step 8 x total at step 11
total at step 10

 
19

Calculate the consideration for the non-standard-rated agency supplies by applying the following formula:

total at step 9 x total at step 11
total at step 10

 
  Working out your output tax  
20

Calculate the output VAT due on the designated travel services by applying the following formula:

total at step 12 x the VAT fraction

12.89
21

Calculate the output VAT due on the standard-rated in-house supplies by applying the following formula:

(total at step 4 + total at step 14 + total calculated at step M2 of section 8) x the VAT fraction.

44.68
22

Calculate the output VAT due on the standard-rated agency supplies by applying the following formula:

total at step 18 x the VAT fraction

-
  Working out sales values  
23 Calculate the VAT-exclusive value of the standard-rated designated travel services by deducting the total at step 20 from the total at step 12. 73.65
24 Note the value of the zero-rated designated travel services at step 13 288.46
25

Calculate the VAT-exclusive value of your standard-rated in-house supplies by applying the following formula:

(total at step 4 + total at step 14 + total calculated at step M2 of section 8) - total at step 21

255.32
26

Calculate the value of the zero rated supplies made within the scheme by applying the following formula:

(total at step 5 + total at step 15 + total calculated at step M3 of section 8)

-
27

Calculate the value of your exempt in-house supplies made by applying the following formula:

total at step 6 + total at step 16

-
28

Calculate the value of your in-house supplies which are supplied outside the UK by applying the following formula:

total at step 7 + total at step 17

-
29

Calculate the total VAT exclusive value of the supplies:

Total of steps 23 to 28. Include this total in box 6 of your VAT return.

617.43
  Working out the annual adjustment  
30 Calculate the total output VAT due on your designated travel services and margin scheme packages by adding the totals at steps 20 to 22 inclusive. 57.57
31 Total the provisional output VAT which has been accounted for during the financial year on the supplies included in the total at step 1. -
32 Deduct the total at step 31 from the total at step 30. Include the resulting total in box 1 of your VAT return, either as a payable amount where the amount is positive or as a deductible amount where the amount is negative. 57.57

TOMS Calculation Example 2 Mixture of market value and cost based in house supplies

Package price £10,000
Being the price paid for the full packages by the holidaymaker
=========================
In-house MV SR £3,500
In-house MV ZR £1,000
Being the market value of in-house supplies included in the packages.
=========================
Bought-in SR cost £1,700
Bought-in ZR cost £0
Being the cost of the bought-in supplies that form part of the packages
=========================
In-house (non-MV) SR £100 + VAT =£117.50
In-house (non-MV) ZR £700
In-house (non-MV) Os £220
=========================
Agency SR £1000
Agency ZR £100
=========================
Using the matrix

Post the £10000 to box M1, the £3500 to box M2 and £1000 to box M3 of the market value matrix.

This works through to £5500 in Box M5 which is then posted to Box 1 of the main margin scheme calculation.

The £1700 is then posted to Box 2,

£117.50 to Box 4,

£700 to Box 5,

£220 to Box 7,

£1000 to Box 8,

£100 to Box 9

The rest of the boxes can then be calculated based on the information (above) that has now been posted.

Market Value calculation (Annual adjustment)

THIS SECTION HAS THE FORCE OF LAW and is referred to in paragraphs xx

This section only applies to packages or parts of packages being apportioned by the market value of the in-house element of the package. On completion of all the steps M1-M5 you must then follow the steps in the cost-based calculation in section 9, taking forward the figures from this section as instructed
Step Boxes requiring ‘raw data’ entry are in white, boxes which ‘process’ that data are in grey.  
  Calculate the value of sales of margin scheme packages  
M1 Total the VAT-inclusive selling prices of all your designated travel services and margin scheme packages supplied during the financial year including any that are not ‘market value’ packages. 10000
  Working out the market value  
M2 Total the VAT inclusive market value of the standard-rated in-house supplies at M1: carry forward this figure to step 21 of section 9 3500
M3 Total the VAT inclusive market value of the zero- rated and outside the scope in-house travel services at M1: carry forward this figure to step 26 of section 9 1000
M4 Total the VAT inclusive market value of the in-house supplies at step M2 + step M3 4500
  Working out selling value of designated travel services and non-market value in-house supplies.  
M5 Deduct the total at step M4 from the total at step M1: carry forward this figure to step 1 of section 9 5500

Cost-based calculation (Annual adjustment)

THIS SECTION HAS THE FORCE OF LAW and is referred to in paragraphs.

This section applies to packages being apportioned by reference to the costs of the in-house element of the package, and imports the figures calculated by the market value method in section 8, where that method is used for all or some of the travel packages. Do not include values already entered in section 8 unless explicitly stated
Step Boxes requiring ‘raw data’ entry are in white, boxes which ‘process’ that data are in grey.  
  Working out the total sales of margin scheme packages  
1 Bring forward the total calculated at step M5 of section 8. If Section 8 is not used then enter the VAT-inclusive selling prices of your designated travel services and margin scheme packages supplied during the financial year. 5500
  Working out the purchase prices of margin scheme supplies  
2 Total the VAT-inclusive purchase prices of the standard-rated designated travel services included in the total at step 1. 1700
3 Total the VAT-inclusive purchase prices of the non standard-rated designated travel services (supplies enjoyed outside the EU) included in the total at step 1. -
  Working out the direct costs of in-house supplies. Steps 4 to 7 can be ignored where a market value is applied to all in-house supplies under section 8  
4 Total the VAT-exclusive direct costs to you of the standard-rated in-house supplies included in step 1. Add a percentage of that amount equivalent to the standard rate of VAT. 117.50
5 Total the VAT-exclusive direct costs to you of the zero-rated in-house supplies included in step 1. 700
6 Total the VAT-inclusive direct costs to you of the exempt in-house supplies included in step 1. Deduct any input tax that you are entitled to recover on these costs. -
7 Total the direct costs to you of the in-house supplies included in step 1 that are supplied outside the UK, exclusive of any VAT incurred on these costs that you are entitled to recover. Add to the total an uplift equivalent to the percentage VAT rate applicable to such supplies if you have accounted for VAT on these supplies to the VAT authorities in another member state. 220
  Working out the 'costs' of agency supplies  
8 Total the VAT-inclusive amounts paid by you to your principals in respect of the agency supplies included in step 1 for which the consideration you receive is standard-rated 1000
9 Total the VAT-inclusive amounts paid by you to your principals in respect of the agency supplies included in step 1 for which the consideration you receive is not standard-rated 100
  Working out the total margin  
10 Add the totals of costs at steps 2 to 9 inclusive. 3837.50
11 Calculate the total margin for all the supplies included in step 1 by deducting the total at step 10 from the total at step 1. 1662.50
  Apportioning the margin  
12

Calculate the margin for the standard-rated designated travel services by applying the following formula:

total at step 2 x total at step 11
total at step10

736.48
13

Calculate the margin for the zero-rated designated travel services by applying the following formula:

total at step 3 x total at step 11
total at step 10

-
  Steps 14 to 17 can be ignored where a market value is applied to all in-house supplies under section 8  
14

Calculate the margin for the standard-rated in-house supplies by applying the following formula:

total at step 4 x total at step 11
total at step 10

50.90
15

Calculate the margin for the zero-rated in-house supplies by applying the following formula:

total at step 5 x total at step 11
total at step10

303.26
16

Calculate the margin for the exempt in-house supplies by applying the following formula:

total at step 6 x total at step11
total at step 10

-
17

Calculate the margin for the in-house supplies made outside the UK by applying the following formula:

total at step 7 x total at step 11
total at step10

95.31
18

Calculate the consideration for the standard-rated agency supplies by applying the following formula:

total at step 8 x total at step 11
total at step 10

433.22
19

Calculate the consideration for the non-standard-rated agency supplies by applying the following formula:

total at step 9 x total at step 11
total at step 10

43.32
  Working out your output tax  
20

Calculate the output VAT due on the designated travel services by applying the following formula:

total at step 12 x the VAT fraction

109.69
21

Calculate the output VAT due on the standard-rated in-house supplies by applying the following formula:

(total at step 4 + total at step 14 + total calculated at step M2 of section 8) x the VAT fraction.

546.36
22

Calculate the output VAT due on the standard-rated agency supplies by applying the following formula:

total at step 18 x the VAT fraction

64.52
  Working out sales values  
23 Calculate the VAT-exclusive value of the standard-rated designated travel services by deducting the total at step 20 from the total at step 12. 626.79
24 Note the value of the zero-rated designated travel services at step 13 -
25

Calculate the VAT-exclusive value of your standard-rated in-house supplies by applying the following formula:

(total at step 4 + total at step 14 + total calculated at step M2 of section 8) - total at step 21

3122.05
26

Calculate the value of the zero rated supplies made within the scheme by applying the following formula:

(total at step 5 + total at step 15 + total calculated at step M3 of section 8)

2003.26
27

Calculate the value of your exempt in-house supplies made by applying the following formula:

total at step 6 + total at step 16

-
28

Calculate the value of your in-house supplies which are supplied outside the UK by applying the following formula:

total at step 7 + total at step 17

316.31
29

Calculate the total VAT exclusive value of the supplies:

Total of steps 23 to 28. Include this total in box 6 of your VAT return.

6067.41
  Working out the annual adjustment  
30 Calculate the total output VAT due on your designated travel services and margin scheme packages by adding the totals at steps 20 to 22 inclusive. 720.57
31 Total the provisional output VAT which has been accounted for during the financial year on the supplies included in the total at step 1. -
32 Deduct the total at step 31 from the total at step 30. Include the resulting total in box 1 of your VAT return, either as a payable amount where the amount is positive or as a deductible amount where the amount is negative. 720.57

TOMS Calculation Example 3 Provisional calculation

For the purpose of this exercise assume the year just gone is the summation of example 1 and example 2
=========================
Value of box 4 £117.50
Value of box 12 £823.02
Value of box 14 £50.90
Value of box 18 £433.22
Value of box M2 £3800
Total £5224.64
=========================
Value of box (M1) £11,000
=========================
Value of supplies this ¼ £3000
=========================
Using the matrix

Post the £5224.64 to box 1

Calculate the provisional percentage (47.49%) in box 2.

Post £3000 to box 3

Multiply £3000 x 47.5% to calculate provisional Std Rate supplies

Extract the VAT from that figure (7/47 in this example)

Accounting for VAT on the provisional value of designated travel services and margin scheme packages

THIS SECTION HAS THE FORCE OF LAW and is referred to in paragraphs
Step    
  Working out the provisional percentage  
1 Calculate the VAT-inclusive amount of your standard-rated supplies of designated travel services and margin scheme packages for the preceding financial year by adding the totals from steps 4, 12, 14 and 18 of section 9, together with the total M2 in the market value calculation in section 8. 5224.64
2

Calculate the VAT-inclusive standard-rated percentage of the total selling price of all your designated travel services and margin scheme packages for the preceding tax year by applying them one of following formulae:

If you have used a market value to value in-house supplies

total at step 1 of this section x 100
total at step M1 of section 8

If you have not used a market value to value in-house supplies

total at step 1 of this section x 100
total at step 1 of section 9

47.5%
  Working out the VAT return figures  
3 Total the VAT-inclusive selling prices of the designated travel services and margin scheme packages supplied during the prescribed accounting period. 3000
4

Calculate the provisional VAT-inclusive amount of your standard-rated supplies of designated travel services and margin scheme packages made during the prescribed accounting period by applying the following formula:

total at step 3 x percentage at step 2

1424
5 Calculate the provisional amount of output VAT due for the prescribed accounting period by applying the following formula:
total at step 4 x the VAT fraction
212.23

Tertiary Law

THIS SECTION HAS THE FORCE OF LAW and is referred to in paragraphs

TL1

1. This section shall come into effect on 1 January 1998.

2. Where a tour operator, in the same financial year, supplies:

  • designated travel services or margin scheme packages which are to be enjoyed wholly outside the European Community
  • designated travel services or margin scheme packages which are to be enjoyed wholly or partly within the European Community

the Commissioners of Customs and Excise may, on being given written notification by the tour operator no later than the due date for rendering his first VAT return for the financial year in which the supplies are to be made, allow the supplies under sub-paragraph (a) to be valued separately from those under sub-paragraph (b).

3. Where a tour operator, under paragraph 2 above, has separately valued supplies of designated travel services or margin scheme packages enjoyed wholly outside the European Community from supplies of designated travel services or margin scheme packages enjoyed wholly or partly within the European Community, the Commissioners of Customs and Excise may, on being given written notification by the tour operator no later than the due date for rendering his first VAT return for any subsequent financial year, allow supplies to be made in such subsequent financial year to be valued using the method specified at sections 8 and 9 of this Notice.

TL2

1. This section shall come into effect on 1 January 1998.

2. Where:

  • a supply of goods or services is acquired by a tour operator for the purpose of supplying a designated travel service
  • the value of the supply to the tour operator is expressed in a currency other than sterling

the tour operator must convert such value into sterling for the purposes of steps 2 and 3 of section 9 of this Notice or step 2 of section 11 of this Notice.

3. For the purposes of paragraph 2 above, the tour operator must use one of the following:

  • the rate of exchange published in the Financial Times using the Federation of Tour Operators’ base rate current at the time such supplies were costed by the person from whom the tour operator has acquired the goods or services
  • the commercial rate of exchange current at the time that the supplies in his brochure were costed
  • the rate published in the Financial Times on the date that the tour operator pays for the supplies
  • the rate of exchange which was applicable to the purchase by the tour operator of the foreign currency which he used to pay for those supplies
  • the period rate of exchange published by Customs and Excise for customs purposes in force at the time the tour operator pays for those supplies

4. Where the methods at paragraph 3(a) or (b) above are used, the tour operator must publish the rate in any brochure or leaflet in which these supplies are held out for sale.

5. The Commissioners of Customs and Excise may, on being given written notification by a tour operator no later than the due date for rendering his first return of his financial year, allow a different method to be used in that financial year from that used in the previous financial year.

TL3

1. This section shall come into effect on 1st January 2010.

2. Where possible the value of any in-house supplies shall be valued by reference to their market value and the value of designated travel services and agency supplies shall be determined by applying the formula set out in section 8 of this Notice (hereinafter referred to as the 'market value calculation'), unless during the relevant period all such supplies are liable to VAT at the same rate, in which case the value shall be determined by applying the formula set out in section 11 of this Notice (hereinafter referred to as 'the simplified calculation').

3. On completing the steps in the market value calculation the figures produced must be entered into the cost-based calculation as detailed in section 9 together with any packages, or parts of packages, for which the market value calculation is not being done.

4. Where the cost-based calculation in TL4 accurately reflects the structure of the package holidays you may opt to use the cost-based calculation for all packages regardless of whether a market value can be established for some or all of the packages and section 8 calculations may be ignored.

5. Where the market value calculation has been used a tour operator may only cease to use that method where it becomes impossible to continue to determine a market value of the supply in question or where the cost-based calculation accurately reflects the structure of the package.

TL4

1. Subject to Section TL1 and TL3 of section 13 of this Notice, the value of designated travel services, in-house supplies and agency supplies shall be determined by applying the formula set out in section 9 of this Notice (hereinafter referred to as the 'cost-based calculation'), unless during the relevant period all such supplies are liable to VAT at the same rate, in which case the value shall be determined by applying the formula set out in section 11 of this Notice (hereinafter referred to as 'the simplified calculation').

2. The provisional value of designated travel services, in-house supplies and agency supplies shall be determined in accordance with the formula set out in:

  • section 10 of this Notice, where the cost-based calculation applies
  • section 12 of this Notice, where the simplified calculation applies

3. A tour operator shall be required to account for VAT on the provisional value of his supplies of designated travel services, in-house supplies and agency supplies on the VAT return for the prescribed accounting period in which the supplies are made.

4. The difference between the amount of VAT due on the value of designated travel services, in-house supplies and agency supplies supplied during a tour operator’s financial year, and the amount of VAT paid on the provisional value of those supplies, shall be adjusted by the tour operator on the VAT return for the first prescribed accounting period ending after the end of the financial year during which the supplies were made.

TL5

1. For the purpose of sections 8 to 13 of this Notice:

(a) 'in-house supply' means a supply by a tour operator which is neither a designated travel service nor an agency supply;
(b) 'market value' means the selling price of the in-house element of a 'margin scheme package' were it to be sold independent of the package in an arms-length transaction to an unconnected person.
(c) 'cost based method' means the calculation in section 9 of this Notice.
(d) 'agency supply' means a supply arranged by a tour operator between two other persons, in the capacity of an agent or intermediary for either person, for which the tour operator receives a consideration, the value of which is not readily identifiable;
(e) 'margin scheme package' means a single transaction which includes one or more designated travel services;
(f) 'financial year' means a period corresponding to a tour operator’s financial year for accounting purposes;
(g) 'direct costs' means costs which are directly and specifically attributable to the provision of in-house supplies, to the extent that they are so attributable;
(h) 'VAT fraction' has the same meaning as in Notice 700 The VAT Guide«LINK».


About the Author

© Crown Copyright 2009.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.



Follow us @Scopulus_News

Article Published/Sorted/Amended on Scopulus 2009-04-10 14:40:57 in Tax Articles

All Articles

Copyright © 2004-2019 Scopulus Limited. All rights reserved.